I thought general consensus was to use Fidelity Global Ex US Index Fund Investor Class (FSGUX) or Premium Class (FSGDX), rather than Fidelity Total International Index Fund Investor Class (FTIGX) or Premium Class (FTIPX)?

We believe we have far too many individual municipal bonds in our portfolio ( chosen by a former AUM and inherited after a parent's death)

We. want to transition to a 3 fund portfolio consisting of an S&P index fund, an international index fund and a bond fund as relected in this thread.

The munis are nearly 50% of our current portfolio which is currently at $1,700,000 and the remainder has a mix of equities and bonds, I would list all the munis but there are well over 30 and We can't see the advantage of owning so many.

Perhaps we are missing something.perhaps,this is simpler than we know. The performance of the total portfolio has not come close to meeting benchmarks and th munis have had an especially low return.

My spouse and I are nearing retirement and are in our mid 60s. We anticipate $2400 of Social Security before taxes.

How should we transition the munis to a 3 fund portfolio? We,have a transition plan for the rest of the portfolio, as tax advantaged as possible.

We are not experts in investing but do know something about rebalancing our portfolio once it is in place. Getting the munis into it is confusing us.

It would also be helpful if you posted what you have using the Asking Portfolio Questions format. It will make you think about the "big picture" while giving us the info we need to point you in the right direction.

To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

It would also be helpful if you posted what you have using the Asking Portfolio Questions format. It will make you think about the "big picture" while giving us the info we need to point you in the right direction.

kayanco wrote:I have three questions on the 3-fund portfolio please[/url]

kayanco: I will try to answer your questions in blue:

1. If someone started with a 90/10 (stock/bond) based 3-fund portfolio, but then never ever rebalanced it, how terrible is that?

It might work, but it might not. You will need an iron stomach to stay-the-course when your life savings lose over 50% in a bad bear market. Also, when you retire, it is very important to keep what you've got. This is the reason all target funds increase their bond allocation as the investor gets older.

2. Can i-bonds substitute for the bond portion of the 3-fund portfolio?

Yes. Most fixed-income income investments (including I-bonds) are safe and will provide safety in a portfolio. I like Total Bond Market for its diversification, simplicity and safety (it's worst annual loss since inception was -2.66%).

3. If someone just has 100% Total International fund. How does that compare to the full 3-fund return%? Any place I can look at a past performance compare? This is mostly just out of curiosity.

Past performance depends on the period chosen. It does not predict future performance. It is a terrible way to pick mutual funds. The government requires mutual funds to warn against it.

kayanco wrote:I have three questions on the 3-fund portfolio please[/url]

2. Can i-bonds substitute for the bond portion of the 3-fund portfolio?

Yes. Most fixed-income income investments (including I-bonds) are safe and will provide safety in a portfolio. I like Total Bond Market for its diversification, simplicity and safety (it's worst annual loss since inception was -2.66%).

3. If someone just has 100% Total International fund. How does that compare to the full 3-fund return%? Any place I can look at a past performance compare? This is mostly just out of curiosity.

Past performance depends on the period chosen. It does not predict future performance. It is a terrible way to pick mutual funds. The government requires mutual funds to warn against it.

Best wishes.Taylor

Thank you Taylor. I'm so grateful for your response.

Follow-up on 2: So if one has both I-Bonds and Total Bond fund, would you add their percentages to get the total bond % for asset allocation? As in, for a 90/10 ratio, the 10% would include both I-bond + Total Bond?Also, if you hold the Total Bond fund, does it make I-bonds unnecessary?

Regarding 3: I do understand past performance doesn't represent future performance. I was mainly curious by what magnitude would the two differ. Let's say over a couple of different 10 or 15 year periods, what would the returns be. Just wondering how much the returns would diverge? If it's an easy answer, I'd be interested. Otherwise, it's not a big deal

The bond allocation percentage would include any and all bond funds held.Regarding comparison of bond funds Vanguard has a comparison tool and you could enter the Total Bond Fund [vbmfx] and compare it to the Inflation Protected Securities fund [vaipx] to get an idea. https://personal.vanguard.com/us/funds/ ... tingFrom=2

Any major differences between Vanguard FTSE All-World ex-US Index Fund ETF Shares and Vanguard Total International Stock Index Fund Investor Shares ? FTSE is $28B assets and the Total International is $250B but a higher ER than FTSE (0.11 vs. 0.18). Returns seem to be nearly identical and top ten holdings are.

Thanks for pointing out the problem. I thought I was pointing to a page comparing two funds on the Vanguard site. I got there by seeing the list of all funds and selecting two that i wanted to compare. Apparently that is a page that cannot be used as a reference link.

deltaneutral83 wrote:Any major differences between Vanguard FTSE All-World ex-US Index Fund ETF Shares and Vanguard Total International Stock Index Fund Investor Shares ? FTSE is $28B assets and the Total International is $250B but a higher ER than FTSE (0.11 vs. 0.18). Returns seem to be nearly identical and top ten holdings are.

If I recall VEU doesn't contain small caps somebody can correct me if I am incorrect. I believe its only a large cap international blend fund.

regarding the three fund portfolio as it applies to today's market and the prime rate increase today. I have little or no experience in the financial market and try to follow this golden rule diversifying between stock, international, and bonds. So far its served me well. We're in a scenario now where the market is breaking records, interest rates are very low, and international is looking volatile with brexit, etc. Again, i'm not an expert, just asking. Typically when interest rates go up, bonds go down. Market is in my opinion ripe for a serious correction. Do we have the rare situation brewing where both market and bonds could be decline simultaneously given the low interest rates. I believe this happened in 1940 and 1970, correct? How does a three fund portfolio protect against this?

groho wrote:regarding the three fund portfolio as it applies to today's market and the prime rate increase today. I have little or no experience in the financial market and try to follow this golden rule diversifying between stock, international, and bonds. So far its served me well. We're in a scenario now where the market is breaking records, interest rates are very low, and international is looking volatile with brexit, etc. Again, i'm not an expert, just asking. Typically when interest rates go up, bonds go down. Market is in my opinion ripe for a serious correction. Do we have the rare situation brewing where both market and bonds could be decline simultaneously given the low interest rates. I believe this happened in 1940 and 1970, correct? How does a three fund portfolio protect against this?

It makes a great deal of difference how much the two investments go down. Down for stocks is very different from down for bonds. (Also, some commentary about bonds means long term bonds whereas most people here invest in short to intermediate bonds.)

The correct analysis is the return and risk of the whole portfolio taking into account the risk and return of the parts and the possible correlation or lack of same among the parts. There is no portfolio that offers significant return and no risk.

groho wrote: Do we have the rare situation brewing where both market and bonds could be decline simultaneously given the low interest rates. I believe this happened in 1940 and 1970, correct? How does a three fund portfolio protect against this?

groho:

It is impossible to forecast what the stock and bond markets will do as evidenced by the number of wrong forecasts in our annual Boglehead Contest. The Three-Fund Portfolio allows you to easily adjust each of the three fund categories to whatever weighting you want (even zero).

This is the best and most observant question that I have seen on the subject of the 3 fund portfolio or on any other portfolio. It is particularly relevant to those of us who are older and have high allocations in the Total Bond Index. I am also not an expert but it would seem that our bond portfolio should receive some adjustment to short term bonds. How much of an adjustment I have no clue.In my last conversation last week with a Vanguard Flagship Advisor, I was told not to be too concerned because over time the bond index will start to pick up higher yield bonds which will ensure to our benefit. However at 77 years of age I may not be here to witness such an event. Thus short term corporates start looking more realistic for us older folks. I can't wait for 4% CDs and get out of this market just like the old days.

groho wrote:regarding the three fund portfolio as it applies to today's market and the prime rate increase today. I have little or no experience in the financial market and try to follow this golden rule diversifying between stock, international, and bonds. So far its served me well. We're in a scenario now where the market is breaking records, interest rates are very low, and international is looking volatile with brexit, etc. Again, i'm not an expert, just asking. Typically when interest rates go up, bonds go down. Market is in my opinion ripe for a serious correction. Do we have the rare situation brewing where both market and bonds could be decline simultaneously given the low interest rates. I believe this happened in 1940 and 1970, correct? How does a three fund portfolio protect against this?

Duffydog1 wrote:This is the best and most observant question that I have seen on the subject of the 3 fund portfolio or on any other portfolio. It is particularly relevant to those of us who are older and have high allocations in the Total Bond Index. I am also not an expert but it would seem that our bond portfolio should receive some adjustment to short term bonds. How much of an adjustment I have no clue.In my last conversation last week with a Vanguard Flagship Advisor, I was told not to be too concerned because over time the bond index will start to pick up higher yield bonds which will ensure to our benefit. However at 77 years of age I may not be here to witness such an event. Thus short term corporates start looking more realistic for us older folks. I can't wait for 4% CDs and get out of this market just like the old days.

If you have significant bond holdings late in life perhaps it is time to think about those bonds being for your heirs and not for you. Presumably they have a much longer investment horizon so the issues you raise do not apply. If you are living off the income from the bonds, longer term bonds should have higher dividends. In any case, TBM index has a wide variety of maturities.

If you DON'T have significant bond holdings it little matters what kind of bonds they are.

Listen very carefully. I shall say this only once. (There! I've said it.)

Duffydog1 wrote:This is the best and most observant question that I have seen on the subject of the 3 fund portfolio or on any other portfolio. It is particularly relevant to those of us who are older and have high allocations in the Total Bond Index. I am also not an expert but it would seem that our bond portfolio should receive some adjustment to short term bonds. How much of an adjustment I have no clue.In my last conversation last week with a Vanguard Flagship Advisor, I was told not to be too concerned because over time the bond index will start to pick up higher yield bonds which will ensure to our benefit. However at 77 years of age I may not be here to witness such an event. Thus short term corporates start looking more realistic for us older folks. I can't wait for 4% CDs and get out of this market just like the old days.

I am 79 with 70% fixed income in my portfolio. I totally agree with Duffydog and have already shifted assets from my intermediate bond funds to a short term bond fund (VFSUX) and cash in an online savings account. The majority of the bond funds still are intermediate but mostly in VFIDX (Intermediate investment Grade).

Last edited by Munir on Tue Mar 21, 2017 7:07 am, edited 1 time in total.

Today was the end of the first quarter of 2017. I linked to MarketWatch and was pleased to learn that Allan Roth's "Second Grader's Starter" (Three-Fund Portfolio) continues to lead eight expertly-designed portfolios for the past 1 year, 3 years, 5 years and 10 years.

If one is confined to a taxable account in the 33% bracket, would Intermediate Tax-Exempt be clearly preferable to Total Bond Market as the bond fund in a Three-Fund Portfolio? Or could either choice be defended?

Or to frame ir another way: How much additional after-tax yield is a worthwhile trade-off for reduced diversification?

I recently opened a vanguard account and read up on the 3 fund portfolio, which is something I am leaning towards. I am a definite newb and learning as much as I can here. Would it make any sense to just buy the 3 etfs recommended for ex. VTI,VXUS, and BND and just add shares monthly and not worry about constantly checking my account? Ps. This forum is great, so glad I found it

Investinoob wrote:I recently opened a vanguard account and read up on the 3 fund portfolio, which is something I am leaning towards. I am a definite newb and learning as much as I can here. Would it make any sense to just buy the 3 etfs recommended for ex. VTI,VXUS, and BND and just add shares monthly and not worry about constantly checking my account? Ps. This forum is great, so glad I found it

Investinoob:

More information is needed to give you an informed opinions such as fund placement, asset allocation, mutual funds or ETFs, possibility of a single target fund, etc. This forum is for general questions and comments about The Three-Fund Portfolio.

Today was the end of the first quarter of 2017. I linked to MarketWatch and was pleased to learn that Allan Roth's "Second Grader's Starter" (Three-Fund Portfolio) continues to lead eight expertly-designed portfolios for the past 1 year, 3 years, 5 years and 10 years.

This list of portfolios seems to be quite a fruit basket... there is no consistency to the stock/bond split. The "second graders..." portfolio is 90% stock, 10% bond, while the "coffee house" is 40% bonds. Bernstein portfolio is 25% bonds, Yale's is 15%, and so on.
Seems like the comparison between portfolios is very much apples and oranges.

sandramjet wrote:This list of portfolios seems to be quite a fruit basket... there is no consistency to the stock/bond split. The "second graders..." portfolio is 90% stock, 10% bond, while the "coffee house" is 40% bonds. Bernstein portfolio is 25% bonds, Yale's is 15%, and so on.
Seems like the comparison between portfolios is very much apples and oranges.

I have had the three-fund portfolio since I opened our Vanguard account 7 years ago. It has done quite well. I just talked to a Flagship adviser, and he recommended adding the Total International Bond Index Fund to diversify the Total Bond Fund.

Vanguard (and the adviser) recommend having more International (both stocks and bonds) than I have been carrying. What I like about the Total Stock and Total Bond is their low expense ratio - nothing beats the low Total Stock and Total Bond fund expense ratio. The International funds are double that expense (still very low). I know we are only talking about an increase from .05/.06 to .10/.11.

So, my question is - is it important to add Total Int'l Bond to my portfolio for diversity/mitigating risk as advised - and do the extra expense ratios make the Int'l still a valuable fund to have for diversity.

So, my question is - is it important to add Total Int'l Bond to my portfolio for diversity/mitigating risk as advised - and do the extra expense ratios make the Int'l still a valuable fund to have for diversity?

wovenhearts:

I answered this question for Norske77 on page 11 of this topic (about 3/4 of the way down). I feel the same today.

Thank you Taylor, that was very helpful. Don't know why Vanguard gives advice contrary to what I read on here. These boards and recommended books started me on this path and I've been a convert ever since.

wovenhearts wrote:Thank you Taylor, that was very helpful. Don't know why Vanguard gives advice contrary to what I read on here. These boards and recommended books started me on this path and I've been a convert ever since.

wovenhearts,

The Three-Fund Portfolio is tilted to the U.S. and isn't equivalent to the market portfolio, or (a proxy for) the global portfolio of all assets. Remember, someone must hold non-zero amounts of international bonds. Who does if you don't, and why do they? What makes international bonds so attractive to them and so unattractive to you? Why should you hold exactly zero of those higher (and, sometimes, lower) credit and political risks associated with international bonds?

If you omit a big part of the market portfolio, you put yourself in danger of doing better/worse than the average, or having a return that's better/worse than the return on (a proxy for) the global portfolio of all assets.

Does it follow that a home-state-specific tax-exempt bond fund would be even better? Even a more-overleveraged-than-most state like Massachusetts?

I will not invest in a state specific bond fund. Too much risk for me. I prefer the diversification of a national tax exempt bond fund and specifically Vanguard Intermediate Term Tax Exempt. It is important to remember to not let the tax tail wag the dog!

John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" |
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Disclosure: Three Fund Portfolio + U.S. & International REITs